GLOBAL INDIA HOSPITALITY SERVICES P. LTD, MUMBAI V. ASST CIT 8(1), MUMBAI

ITA 4344/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8511 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 20-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 19-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Business income
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI B.R.BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO 4344/MUM/2014 ASSESSMENT YEAR: 2006-07 M/S. GLOBAL INDIA HOSPITALITY SERVICES PRIVATE LIMITED. 205-206, MEERA-HARI NIWAS, SVP NAGAR, NEAR VARSOVA TELEPHONE EXCHANGE, ANDHERI(W). MUMBAI- 400053 PAN:- AABCP6881C VS. THE ACIT - 8(1), ROOM NO. 210, 2 ND FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI- 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI. B.S.BIST. DATE OF HEARING: 2 0 /01/2017 DATE OF PRONOUNCEMENT: 31/01/20 17 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGA INST ORDER DATED 26/03/2014 PASSED BY THE LD. CIT(APPEALS)-16 MUMBAI FOR THE ASST. YEAR 2006-07, WHEREBY THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE FILED AGAINST PENALTY ORDER DATED 27/03/2012 PASSED U/S 2 71(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. CASE WAS CALLED FOR HEARING, HOWEVER, NONE APPEA RED ON BEHALF OF THE ASSESSEE. WE NOTICED THAT THIS WAS THE SECOND OCCAS ION THAT THE ASSESSEE EITHER DID NOT APPEAR ON THE DATES FIXED FOR HEARING OR SO UGHT ADJOURNMENT. THE ASSESSEE DID NOT APPEAR SUCCESSIVELY FOR THE LAST T WO DATES WHEN THE CASE WAS 2 ITA NO 4344/MUM/2014 ASSESSMENT YEAR: 2006-07 FIXED FOR HEARING NOR ANY REQUEST WAS RECEIVED FOR ADJOURNMENT. FROM THE CONDUCT OF THE ASSESSEE WE ARE SATISFIED THAT THE A SSESSEE IS NOT INTERESTED IN PURSUING ITS APPEAL. WE ACCORDINGLY, DECIDED TO PRO CEED EX PARTE AGAINST THE APPELLANT/ASSESSEE ON THE BASIS OF MATERIAL ON RECO RD AFTER HEARING THE DEPARTMENTAL REPRESENTATIVE (DR). 3. BRIEF FACTS OF THE CASE ARE THAT, IN THIS CASE A O COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 147 OF THE ACT, ASSESSING THE TOT AL INCOME AT RS. 3,62,71,210/-, AFTER MAKING ADDITION U/S 2 (24)(X) OF RS. 7,077/-, ADDITION ON ACCOUNT OF UNACCOUNTED SALES OF RS. 71,17,808/- AND DISALLOWANCE OF RS. 1,10,95,698/- U/S 40(A)(IA). THE LD. CIT(A) CONFIRM ED THE ADDITION U/S 2(24)(X) AND ADDITION ON ACCOUNT OF UNACCOUNTED SALES TO THE TUNE OF RS. 2,84,712/-. SHOW CAUSE NOTICE WAS ACCORDINGLY ISSUED TO THE ASS ESSEE AS TO WHY THE PENALTY U/S 271(1)(C) IN RESPECT OF ABOVE ADDITIONS SHOULD NOT BE LEVIED. IN RESPONSE THEREOF THE AUTHORIZED REPRESENTATIVE SUBM ITTED THAT THE ADDITIONS U/S 2(24)(X) HAS WRONGLY BEEN MADE AS THE EMPLOYEES CONTRIBUTION TO PF/ESIC COULD NOT BE DISALLOWED U/S 43B AS WELL AS U/S 2(24 )(X) R.W.S. 36(1)(VA). IN RESPECT OF LEVY OF PENALTY ON THE ISSUE OF UNACCOUN TED SALES THE ASSESSEES CONTENTIONS WAS THAT AS PER THE DECISION OF SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS (322 ITR 158), NO PENALTY CA N BE LEVIED AS MERE REJECTION OF CLAIM DOES NOT AMOUNT TO FILING OF INA CCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME. THE A.O REJECTED THE CON TENTIONS OF THE ASSESSEE AND LEVIED PENALTY OF RS. 98,215/- U/S 271(1)(C) OF THE ACT HOLDING THAT THE ASSESSEE COMPANY HAS DELIBERATELY CLAIMED WRONG DED UCTIONS BY FURNISHING INACCURATE PARTICULARS OF INCOME. IN APPEAL THE LD. CIT(A) FOLLOWING THE DIRECTIONS OF THE ITAT GIVEN IN QUANTUM APPEAL ORDE R HELD THAT NO PENALTY IS LEVIABLE ON ADDITION U/S 2(24)(X) AND PENALTY IS RE QUIRED TO BE COMPUTED ON THE AMOUNT OF UNDERSTATED INCOME AS WORKED OUT IN THE O RDER OF CIT(A). 3 ITA NO 4344/MUM/2014 ASSESSMENT YEAR: 2006-07 4. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS)-16, WAS TOTALL Y ARBITRARY AND UNJUSTIFIED IN LEVYING THE PENALTY U/S. 271(1)(C) O F THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE A DDITION WERE MADE SIMPLY ON THE BASIS OF ESTIMATION OF GROSS PRO FIT BASED ON AVERAGE OF LAST FOUR YEARS. 5. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E AND ALSO PERUSED THE MATERIAL ON RECORD. WE NOTICE THAT IN THE LIGHT OF THE OBSERVATIONS OF THE COORDINATE BENCH OF ITAT IN QUANTUM APPEAL ORDER, T HE LD. CIT(A) HAS HELD THAT NO PENALTY IS LEVIABLE ON ADDITION U/S 2(24)(X ) AND PENALTY IS REQUIRED TO BE COMPUTED ON THE AMOUNT OF UNDERSTATED INCOME OF RS. 26,45,955/- AND HAS DIRECTED THE AO TO RECOMPUTED THE AMOUNT OF PENALTY . THE RELEVANT PORTION OF THE ORDER PASSED BY THE COORDINATE BENCH OF THE ITA T IN QUANTUM APPEAL READS AS UNDER: WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIV AL CONTENTIONS CAREFULLY. THE DISPUTE RAISED IN THIS APPEAL IS REG ARDING ADDITION ON ACCOUNT OF EXCESS SALES FOUND ON THE DATE OF SURVEY ON 29.9.2006 WHICH WERE NOT ACCOUNTED. THE TOTAL TURNOVER AS PER P&L ACCOUNT FOUND ON THE DATE OF SURVEY FOR THE YEAR ENDING 31. 3.2006 WAS RS.14,47,96,577/- . HOWEVER AFTER TOTALING OF SALE INVOICES THE SURVEY PARTY FOUND TOTAL SALES AT RS.15,19,14,380/- , THERE BEING THUS EXCESS SALES OF RS.71,17,808/-. THE DIRECTOR O F THE COMPANY IN THE STATEMENT AT THE TIME OF SURVEY OFFERED A SUM O F RS.71,17,808/- AS ADDITIONAL INCOME, BUT IN THE RETURN OF INCOME, THE SAID ADDITIONAL 4 ITA NO 4344/MUM/2014 ASSESSMENT YEAR: 2006-07 INCOME WAS NOT DECLARED . THE CASE OF THE ASSESSEE IS THAT IN THE RETURN OF INCOME TOTAL SALES DECLARED BY THE ASSESS EE WAS RS.15,55,40,281/- WHICH WAS MORE THAN TOTAL SALES F OUND BY THE SURVEY PARTY. THE PROFIT WAS ALSO DECLARED MORE THA N THE TOTAL PROFIT SHOWN AT THE TIME OF SURVEY. THE AO HAS HOWEVER NOT ACCEPTED THE CLAIM ON THE GROUND THAT IN THE P&L ACCOUNT FILED W ITH THE RETURN OF INCOME, THE ASSESSEE HAD ALSO CLAIMED ADDITIONAL EX PENSES INCLUDING PURCHASES AMOUNTING TO RS.2,81,87,045/-. THE AO HAS NOT ACCEPTED THE CLAIM OF THESE EXPENSES AS THE ASSESSE E COULD NOT FILE ANY RECONCILIATION TOWARDS THE FIGURE OF PURCHASE A ND SALES SHOWN IN THE P&L ACCOUNT FOUND AT THE TIME OF SURVEY AND P&L ACCOUNT FILED AT THE TIME OF RETURN. HE, THEREFORE, ADDED A SUM OF RS.71,17,808/- AS DECLARED BY THE DIRECTOR AS ADDIT IONAL INCOME AT THE TIME OF SURVEY. CIT(A) HAD TAKEN A VIEW THAT ON LY THE NET PROFIT ON SALES FOUND EXCESS AT THE TIME OF SURVEY COULD B E ADDED AS THERE WAS NO MATERIAL TO SHOW THAT THE CORRESPONDING INVE STMENT IN THE PURCHASES WAS UNACCOUNTED. HE HAS THUS CONFIRMED TH E ADDITION OF RS.2,84,712/- BEING 4% OF RS.71,17,808/-. ON CAREFUL CONSIDERATION OF ALL ASPECTS OF THE MAT TER, WE ARE UNABLE TO SUSTAIN THE ORDER OF CIT(A). ONCE, CERTAI N SALES WERE FOUND TO BE UNACCOUNTED IN THE P&L ACCOUNT AT THE TIME OF SURVEY, THE BURDEN LAY ON THE ASSESSEE TO SHOW THAT THE CORRESP ONDING PURCHASES HAD BEEN ACCOUNTED WHICH HAS NOT BEEN DON E. THE ASSESSEE HAD ALSO CLAIMED ADDITIONAL EXPENSES INCLU DING PURCHASES OF RS.2,81,87,045/-. DESPITE THE SPECIFIC REQUISITI ON BY AO, THE ASSESSEE HAD NOT GIVEN ANY RE-CONCILIATION BETWEEN THE PURCHASES AND SALES WHICH WERE NOT ACCOUNTED IN THE P&L ACCOU NT FOUND AT THE TIME OF SURVEY. THOUGH THE DIRECTOR AT THE TIME OF SURVEY HAD 5 ITA NO 4344/MUM/2014 ASSESSMENT YEAR: 2006-07 ALSO STATED THAT SOME PURCHASE BILLS WERE ALSO UNAC COUNTED, THE ASSESSEE WAS REQUIRED TO GIVE RECONCILIATION BETWEE N ALL THE PURCHASES AND SALES WHICH REMAINED UNACCOUNTED EVEN AFTER PASSAGE OF SEVEN MONTHS AFTER THE CLOSE OF THE ACCO UNTING YEAR WHEN THE SURVEY WAS CONDUCTED. THEREFORE, IN OUR VIEW, T HE ACCOUNTS OF THE ASSESSEE CANNOT BE TAKEN AS RELIABLE AND IN THE ABSENCE OF COMPLETE RECONCILIATION BETWEEN PURCHASES AND SALES , THE ACCOUNTS HAVE TO BE REJECTED AS NOT RELIABLE AND GROSS PROFI T HAS TO BE ESTIMATED. THE TOTAL SALES DECLARED BY THE ASSESSEE IS MUCH MORE THAN THE TOTAL SALES FOUND BY THE SURVEY PARTY AND, THEREFORE, NO ADDITION CAN BE MADE ON ACCOUNT OF SALES. HOWEVER, GP RATE HAS TO BE ESTIMATED AFTER CONSIDERING THE PAST RECORD OF T HE ASSESSEE. ON QUERY RAISED BY THE BENCH, THE LD. AR FILED COMPARA TIVE RATE OF GP AND NP FROM WHICH IT IS FOUND THAT GP RATE FOR THE IMPUGNED ASSESSMENT YEAR WAS 28.83% WHEREAS IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR I.E. 2005-06, THE GP RATE WAS 36.81 %. THE ASSESSEE IS REQUIRED TO EXPLAIN THE STEEP FALL IN G P RATE WITH SUPPORTING MATERIAL AND THEREAFTER A VIEW HAS TO BE TAKEN ABOUT ADDITION IF ANY TO BE MADE ON ACCOUNT OF GP RATE. S INCE THIS ASPECT HAS NOT BEEN EXAMINED BY THE LOWER AUTHORITIES AND COMPARATIVE STATEMENT WAS ALSO NOT AVAILABLE BEFORE THEM, WE CO NSIDER IT APPROPRIATE TO SET ASIDE THE ORDER OF CIT(A) AND RE STORE THE MATTER BACK TO HIM FOR PASSING A FRESH ORDER AFTER NECESSA RY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE, IF REQUIRED, BY REMANDING THE MATER BACK TO AO AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. IN THE LIGHT OF ORDER OF THE ITAT AFORESAID, THE LD. CIT(A) PASSED THE ORDER GIVING EFFECT TO THE QUANTUM APPEAL ORDER HOLDING A S UNDER:- 6 ITA NO 4344/MUM/2014 ASSESSMENT YEAR: 2006-07 THE ITAT HAS POINTED OUT THAT THE ACCOUNTS ARE NOT RELIABLE AND GROSS PROFIT HAS TO BE ESTIMATED AFTER CONSIDERING THE RECORD OF THE ASSESSEE, ALSO THAT THE STEEP FALL IN GP RATE NEEDS TO BE EXPLAINED. FOR THE FORMER, THE APPELLANT HAS FURNISHED ITS AUD ITED FIGURES FOR A.YS 2005-06 TO AY 2008-09, AND AS REGARDS THE FALL IN GP RATE OVER THE PRECEDING YEAR IT HAS BEEN STATED THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE PROVIDING HOSPITALITY SERVICE, WHICH IS HIGHLY SPECIALIZED SERVICES LIKE CATERING ON BOARD THROUGH SKILLED AND QUALIFIED MAN POWER WHO ARE RECRUITED SPECIFICALLY FOR A PARTICULAR JOB FROM TIME TO TIME. THAT THE SELLING RATE ARE AL WAYS FLUCTUATING DEPENDING ON DEMAND AND SUPPLY OF SERVICES. FURTHER THE PROFITABILITY OF THE BUSINESS DEPENDS UPON THE CLIE NT BEING SERVICED WHETHER IN INDIA OR ABROAD AS THE AMOUNTS MAY BE RE CEIVED IN FOREIGN CURRENCY AND MARGIN OF PROFITS ARE HIGHER C OMPARED TO LOCAL SALES. THEREFORE THE GROSS PROFIT MARGIN ARE NOT CO NSTANT AND ARE NOT COMPARABLE EVERY YEAR. THE GROSS PROFIT OF THE APPELLANT IS THUS REQUIRED TO BE ESTIMATED. DURING THE COURSE OF APPEAL PROCEEDINGS, THE AR OF THE APPELLANT STATED THAT THE APPELLANT IS AGREEABLE TO ADDITION ON THE BASIS OF AVERAGE GP RATE OF THE FOUR AYS 2005-06 TO 2008-09. HOWEVER, SINCE THE ITAT HAVE THEMSELVES CONCLUDED T HAT THE ACCOUNTS FOR AY 2006-07 ARE NOT RELIABLE, THE AVERA GE OF THE THREE AYS AY 2005-06, 2007-08 AND 2008-09 IS TAKEN. TAKIN G THE AVERAGE OF THE THREE AYS OTHER THAN AY 2006-07, ON THE BASIS OF FIGURES FURNISHED BY THE APPELLANT ITSELF, THE AVER AGE GP RATE OF AYS 2005-06, 2007-08 AND 2008-09 WORKS OUT TO 30.37%. T HE APPELLANT HAS DECLARED TURNOVER FOR AY 2006-07 AT RS. 15,55,4 0,281/- ON WHICH APPLYING THE AVERAGE GP RATE AS WORKED OUT, T HE GP COMES TO RS. 4,72,37,583/-. THE APPELLANT HAS DECLARED GP OF RS. 7 ITA NO 4344/MUM/2014 ASSESSMENT YEAR: 2006-07 4,45,91,628/-. THE DIFFERENCE IN TWO, OF RS. 26,45, 955/- IS DIRECTED TO BE ADDED TO THE APPELLANTS INCOME AS ADDITIONAL INCOME UNDERSTATED BY THE APPELLANT. 7. SO WE NOTICE THAT THE IMPUGNED ORDER HAS BEEN PA SSED BY THE LD. CIT(A) ON THE BASIS OF ORDER PASSED BY THE LD. CIT(A) GIVI NG EFFECT TO THE QUANTUM APPEAL. AS PER THE OBSERVATIONS OF THE THIS TRIBUNA L MADE IN QUANTUM APPEAL ORDER, LD.CIT(A) HAS CALCULATED THE UNDERSTATED INC OME OF THE ASSESSEE ON THE BASIS OF AVERAGE GP RATE WORKED OUT AND THE DECLARE D GP RATE. ACCORDINGLY, THE LD. CIT(A) HAS DIRECTED THE AO TO CALCULATE THE PEN ALTY U/S 271(1)(C) OF THE ACT ON THE DIFFERENCE BETWEEN AVERAGE GP AND THE GP DEC LARED BY THE ASSESSEE. HENCE, WE DO NOT FIND ANY INFERENCE IN THE ORDER OF THE LD. CIT(A) SO AS TO INTERFERE WITH THE SAME. WE, THEREFORE, UPHOLD TH E FINDINGS OF THE LD. CIT(A) AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 8. IN THE RESULT APPEAL FILED BY THE ASSESSEE FOR A .Y. 2006-07 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2017 SD/- SD/- ( B.R.BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED:31/01/2017 8 ITA NO 4344/MUM/2014 ASSESSMENT YEAR: 2006-07 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA